We need more children in the UK - even with the recent "boom", we are still significantly below replacement fertility. There are fewer children alive in Britain today than there were in 1900.
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The massive baby boom was followed by a multidecade glut giving us an excess of middle aged & old people but relatively few people of childbearing age. This has hit us less hard than in other parts of Europe, but it's still a problem.
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A sustainable fertility rate would surely be more desirable. Giving birth is the greatest possible investment in the nation's future - and the state should contribute financially (think of it as an investment to boost future tax revenue - taxpayers win in the long run when there are more kids, and when those kids are well fed).
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Child benefit is a trivial proportion of government spending, and should probably be doubled.
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I would rather see pensioners starving on the street than see welfare for young families (the future of the country; in much tougher financial situation than British pensioners) cut.
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I'm not asking for old people to starve, but moving them out of oversized council housing, increasing council tax on expensive properties, raising the retirement age to 70 and cutting the basic pension by 10% would be a start. As a country, we need to start fighting the grey-lobby/ vampire voters and start investing in our future (we don't spend enough on education; we don't spend enough on quality childcare for all working parents; we don't pay enough in child benefit; we don't invest enough in workplace training & employment creation for young people).
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The vampire voters are bankrupting Britain - we must start fighting them (e.g. extend the vote to everyone over the age of 12; give parents of young children - with a stake in the future - extra votes to use on behalf of their young children; allow online voting; campaign intensively to raise election participation of younger age groups).

I don't think Britain needs even more children whose parents have never worked, whose idea of education is learning to play the latest video game, and whose notion of entrepreneurship is stealing items that can quickly be sold on the black market. I remember from my own years in the UK that there's an underclass of "dead eyed rat boys" (to quote Inspector Gadget) and the last thing Britain needs is any more of those, yet this is the most likely outcome of raising child support levels. An acquaintance of mine in France (before they changed their system) openly confessed to having four children (by four different fathers) because it was her easiest economic option. Easing the UK out of that kind of moral hazard will be essential for securing its future - a future which, by the way, probably has far less need of unskilled and semi-skilled workers because of the huge transformations technology will impose over the coming century. In comparison to what the new technologies will do to society, the Industrial Revolution was merely a child's playground. Our problem will be to deal with too many would-be workers, not too few.

I don't believe such people exist in significant numbers.
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The UK has much higher employment than the US (74% of 20-65 year olds vs 70% in the US), thanks to higher workforce participation (unemployment rates are the same right now). Of the 26% not presently employed: 640 basis points are presently unemployed (i.e. recently employed and seeking employment). Of the remaining 1960 basis points, many are early retired, many are undergraduate or postgraduate students, some are women out of work briefly to have kids and some of them are traditional Pakistani/Bangladeshi women (i.e. chained to the kitchen sink).
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The vast majority having kids will not remain out of work - the UK benefit system does not reward unemployment. Life is tough - and with tax credits, it's always better to work than to be out of work (though there are horrible distortions - there are several points where marginal income is effectively taxed at several hundred percent, and thresholds that poor households have to be careful not to cross. Yet the first 20 hours of work or so are always nearly pure gain for a near-minimum-wage parent).
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The question is not one of work - that can be safely assumed (for most of a child's life, its parent or parents will have some kind of employment, however precarious). The question is one of income - no minimum wage part time worker can pay for the cost of bringing up a child. That's where it's in the taxpayer's interest to pick up the tab - well fed & clothed kids will do far better in education, in employment, in life, in staying out of crime and in contributing to future taxes & pensions.
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The internet and new technologies are generating wider social and intellectual changes. I suspect that literacy is higher in this generation than in any previous generation - if you can't write well (social media, texting, BBM) then you are a social outcast; and there is far greater practice (although grammar is more "alive" and evolving - that's probably a good thing linguistically).
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This generation is also far more aware of the world and has a far richer cultural immersion than any previous generation, thanks to online media. Even the kids of poor parents. Do we still have unskilled workers? (We have plenty of people without formal qualifications, but that doesn't mean unskilled.)
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Bringing up kids is a social activity more than any other. It is the environment, the nutrition, the school, the friendships, the social expectations and the technologies available and interactions with random strangers that shape child development, to a greater extent than the parenting (except with rich parents, able to actively invest in selecting & controlling for all the above factors). It's surely right that the state contributes financially to ensure that its future taxpayers have a fair chance at education, health, happiness, success & productive employment.
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You're pushing the lump sum of labour fallacy. Don't - you're surely be more intelligent than that. Just as the combine harvester didn't leave half the population unemployed, so driverless trucks, online retail & automated factories won't be noticed in the unemployment numbers within a decade of their wiping out human employment in these areas. The economy moves on - we're going to need far more ski instructors, elderly care workers, paintball arena workers, personal trainers, media content creators, marketing & branding people, product & service innovators, cooks, waitresses, etc in the future.
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High productivity technologies add fantastically to supply and effective demand in the wider economy. Productivity growth has never killed demand or caused mass unemployment before, and it won't in the future either (though it will cause dislocations, and many industries, trades & professions will be hurt. That just means getting a different job).

Mr Osborne stated that the cruel deaths of six children raised "...a question about the welfare state... subsidising lifestyles like that". No, it does not. It may, to any logical person, raise questions about the existence of evil. It might make the average citizen wonder how anyone can conspire to seriously endanger, if not kill, six of their children....
Most normal people would have to wonder about the mentality of someone whose first public reaction to such a tragedy was "We obviously need to fix the social welfare system....."
In any case, any attempt to make a causal link between Mr Philpott's act of evil savagery, and Britain's welfare system is both illogical, and plain stupid. This trope, expressed in its most disgusting and immoral form by Mr A. N. Wilson in "The Daily Mail" yesterday, seems to arise from a right-wing hatred of everyone who, for various reasons, has ever had to resort to any form of state benefit. In the most extreme cases(like Mr Wilson, above), there is an attempt to portray all people on state benefit as perverted, different(as in dangerous) and potential mass murderers.
In reality, the various frothing at the mouth articles and social media comments tell us more about the authors than anything else. Among other things, the various writers and commentators obviously have no knowledge, or any personal experience, of what life is like on Britain's miserly state benefit system. And they are in no hurry to dispel this ignorance, because they treasure it. If they did know anything about the lifestyle in question, they would be morally obliged to first, apologise, and then do something about this perverted and daft system which has kept up to three generations of families out of the jobs market in parts of Britain.
And the ludicrous gesture politics of cutting child benefit, while it may be a red meat proxy for Mr Cameron's backwoodsmen, will do nothing to change that three-generational problem for the better....

For many people, the desire to have many children is not about taking advantage of the welfare state, but a desire to fulfill our holy duties. Many religions state that sex is for procreation, so every time you have sex with your spouse is for the purpose of having a baby. My co-worker says that he wishes he would have had ten children, had his wife been willing. Maybe the Conservative politicians ought to start in the churches.

Just offer the mothers a cash incentive to put the kids up for adoption abroad. There is a huge unmet need for babies for adoption in the US, in part to replace the Russian that Putin will no longer allow to be exported. That would be a win-win for the mother and the UK taxpayer! You could also auction them on ebay to the highest bidder.

If you want to buy babies, we could always set up a market for that.
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The best base would probably be Belarus - they're pretty unscrupulous, and desperate for any kind of foreign currency they can get (they don't have Russia's oil or gas).
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If you want to provide some starting capital, (1) I'll build the website; (2) I've got some media friends capable of putting together some strong & hitting marketing videos (with phony "past customer" accounts from nice women & Belorussian surrogate mothers, finishing with a nice scene on the positive socioeconomic results for Belorussian participants. :p
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Looking at the UK surrogate mother situation (where it all has to be "voluntary", and involves protracted legal issues & long waiting times for all involved), there's definitely a market that's several tens of million pounds in size. And the US is surely an order of magnitude bigger still.
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So... wanna go into business? (*kidding*)

Really? I thought you were having fun, so joined in. I'm actually genuinely in favor of baby markets - I don't really see an ethical problem where biological mothers or surrogates volunteer (in exchange for openly disclosed cash payments).
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I don't have a problem with auctions for surrogates either. Nor do I have a problem with commercial sperm banks, egg banks, commercial IVF or commercial healthcare tourism or "child birth tourism". It would probably be a good thing for all concerned if somebody did set up stuff like this in Belarus (there's definitely an immensely profitable market opportunity there). It would be a good thing for humanity (and would ease desperate poverty).
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For the UK however, it's actually (economically) in our interest for mothers to have more kids - and it's in the taxpayer interest to pay child benefits for those kids to be well fed & educated.
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The next generation are (on average) net contributors to the tax and welfare system (by somewhere between 7-13% of lifetime income, assuming historic trends). Every additional child makes the welfare framework more sustainable (and reduces the probability/ extent of tax rises on higher income people, or pension cuts for those relying on state pensions).
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The unemployed mother or father having & bringing up kids is making a bigger net contribution to the tax system than the average childless tax payer.
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In an honest balance sheet based national debt system, which tabled both assets and liabilities, pensions & payroll would dominate liabilities (both are a much bigger problem than the official national debt) and human capital would feature prominently on the asset side.

Our dysfunctional political system is not in favour of rational solutions. Hence our crazy drug policies where libertarians have been advocating legalisation and decriminalisation for over 40 years, but no, corrupt vested interests like the status quo.

Having additional children once one is already on the dole ought to be firmly discouraged. It is a severe enough demonstration of irresponsibility that putting the child in care may be an appropriate response.

How is it appropriate to have a response that is not only vastly more expensive but is also shown in all but the most extreme cases to have worse outcomes for children which, in turn, will inevitably lead to yet more expense?

bamphs, are you insane?
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Having kids and bringing them up well is one of the biggest contributions you can make to society. Indeed, if a women is made unemployed, one of the best things she can do to give more purpose to her life is to have kids.
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Likewise for a guy - if you've lost your job, you're in a position where you could look after a young child and give your girlfriend time to work. It's all well and good.
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We need more children. And we need those children to be well fed and clothed. And we want their parents to be well fed, well clothed and unstressed, so that those parents can do the best for their children (reading to them, taking them on excursions, etc).
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Don't be a snob. Even the poorest parents want the best for their kids (overwhelmingly).
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The state should be sufficiently generous that no child is in poverty, regardless of whether the parents work.
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This isn't a major expense (it's not like the military, healthcare or pensions). And yet this one intervention is simultaneously far more important for national security, public health, sustainability of public finances and continued prosperity.
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Look at Scandinavia. Raising the next generation is a social effort. Even the most rabid capitalist state, if it raises any kind of tax revenue, has a strong interest in near-replacement fertility, quality nutrition, education and life opportunities of young people.
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If you see a young "unemployed" mother or father, you should congratulate rather than scold them - they work harder than the majority of childless employed people, and they are certainly making greater personal sacrifice for the future of the nation (and humanity).